Appeal, No. 269, Jan. T., 1961, from judgment of Court of Common Pleas No. 5 of Philadelphia County, June T., 1960, No. 1725, in case of Abe E. Goldman et al. v. Trans-United Industries, Inc. et al. Judgment, as modified, affirmed.
Franklin Poul, with him Abraham L. Freedman, and Wolf, Block, Schorr & Solis-Cohen, for appellants.
M. J. Resnick, for appellee.
Before Jones, C.j., Bell, Musmanno, Jones, Cohen, Bok and Eagen, JJ.
OPINION BY MR. JUSTICE COHEN.
Appellees, collective owners of one-half of one percent of the stock in appellant corporation (Trans-United), filed a complaint in mandamus seeking inspection of the books of Trans-United. The complaint avers that the affairs of Trans-United were not being properly managed and that the books were irregular and incomplete. The complaint also states that the plaintiffs-appellees desire to ascertain: (1) salaries paid to officers and directors, (2) the value of corporate shares, and (3) the names of stockholders and the extent of their holdings, and it is concluded by an assertion that if the books of the corporation reveal irregularities and mismanagement the plaintiffs will either file a bill in equity to appoint a receiver or solicit proxies to effectuate a change in management.
Trans-United's amended answer denied these allegations and alleged as new matter that appellees' true purpose in seeking examination of all the books of Trans-United was to gain control of that corporation through a general plan designed to deflate the market value of Trans-United stock while simultaneously inflating the value of the stock of Son-Mark Industries, Inc., a holding company in which the appellees have an
interest and through which they intend to gain control of Trans-United.
This general plan, as alleged in Trans-United's answer, encompasses several schemes aimed at coercing Trans-United's management to negotiate with Son-Mark for sale of control of Trans-United at a depressed price. Appellees caused articles to be published in leading trade journals implying that Son-Mark was in the process of purchasing control of Trans-United. Appellees then brought this action and publicized Trans-United's refusal to allow inspection of the books as well as the allegations of mismanagement and the possibility that the proceedings would ultimately lead to a receivership. The lower court granted judgment on the pleadings in favor of plaintiff-appellees thus permitting them to examine the books, and Trans-United appealed.
The common law right of a shareholder to inspect the books of a corporation is not an absolute right - it rests on conditions of propriety and reasonableness as to time, place and purpose. The Business Corporation Law of May 5, 1933, P.L. 364, § 308(B), 15 PS § 2852-308(B), which is based on the Model Business Corporation Act, § 35 (9 U.L.A.), is merely a codification of the common law rule. The requested relief will not be granted where the purpose is proven to be improper or unreasonable, but the burden of so proving is on the corporation. Strassburger v. Philadelphia Record Company, 335 Pa. 485, 6 A.2d 922 (1939).
Under the common law rule this Court has refused to permit mere general assertions of improper purpose to defeat a stockholder's right to examine the books. Hodder v. George Hogg Company, 223 Pa. 196, 72 Atl. 553 (1909); Kuhbach v. Irving Cut Glass Company, 220 Pa. 427, 69 Atl. 981 (1908). Both of these cases were decided under the ...